Wells Fargo downgrades Nevro Corp stock to Underweight, slashes PT

On Wednesday, Wells Fargo downgraded shares of Nevro Corp (NYSE:NVRO), a medical device company, from Equal Weight to Underweight, significantly reducing the price target to $5.50 from the previous $13.00. The downgrade follows Nevro's announcement of a strategic review to explore various options for its future, including potential partnerships, a merger, or a sale of the company.

The company has decided not to provide a timeline for this process. Wells Fargo expressed concerns that the announcement could negatively affect employee morale and increase staff turnover. Such internal issues may pose challenges to the company's growth and profitability.

Nevro has indicated that it expects to see benefits in 2025 from its realigned commercial team and territories, an increase in sacroiliac (SI) joint fusion procedures, and the start of a spinal cord stimulation (SCS) replacement cycle. However, Wells Fargo remains skeptical about the company's growth prospects for 2025 due to Nevro's multi-year market share decline and limited success from its commercial initiatives thus far.

The firm highlighted the necessity for Nevro to accelerate top-line growth to improve operating leverage and generate cash flow. Given the current uncertainties and lack of a clear path to achieve this growth, Wells Fargo has adjusted its price target based on approximately 0.4 times enterprise value to its estimated 2025 sales forecast.

In other recent news, Nevro Corp reported a second-quarter revenue of $104.2 million, marking a 4.3% year-over-year decline, which fell short of both Canaccord Genuity's estimate of $108.0 million and the consensus of $108.1 million.

Despite the revenue shortfall, Nevro's adjusted EBITDA of $3.0 million exceeded the anticipated loss of $2.9 million by Canaccord and the consensus loss estimate of $3.2 million. Following these results, Nevro has lowered its full-year 2024 guidance due to persistent weakness in its core U.S. Spinal Cord Stimulation (SCS) market.

In response to the current market conditions, Nevro is exploring strategic alternatives beyond its existing standalone strategy, potentially including mergers and acquisitions or internal research and development. Canaccord Genuity, Piper Sandler, and RBC Capital have all adjusted their price targets for Nevro, reflecting the company's recent performance.

Despite the challenges, Nevro reported an 8% organic growth and a significant 73% year-over-year increase in positive free cash flow. Nevro has also raised its full-year 2024 outlook, expecting gross revenue to be between $937 and $942 million, and adjusted earnings per share to be between $5.05 to $5.11.

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